Module 3 Unit 3 Supply and Demand
A good for which demand increases when income increases is called a normal good. A good for which demand decreases when income increases is called an inferior good
. An increase in income shifts the demand curve for fresh fruit (a normal good) to the right; it shifts the demand curve for canned fruit (an inferior good) to the left.
A change in the price of a good or service causes a change in the quantity demanded—a movement along the demand curve. d.
A change in a demand shifter causes a change in demand, which is shown as a shift of the demand curve. Demand shifters include preferences, the prices of related goods and services, income, demographic characteristics, and buyer expectations.
A change in the price of a good or service causes a change in the quantity supplied—a movement along the supply curve.
A change in a supply shifter causes a change in supply, which is shown as a shift of the supply curve. Supply shifters include prices of factors of production, returns from alternative activities, technology, seller expectations, natural events, and the number of sellers.
. An increase in income shifts the demand curve for fresh fruit (a normal good) to the right; it shifts the demand curve for canned fruit (an inferior good) to the left.
A demand schedule is a table that shows the quantities of a good or service demanded at different prices during a particular period, all other things unchanged.
Two goods are substitutes if an increase in the price of one causes an increase in the demand for the other. Two goods are complements if an increase in the price of one causes a decrease in the demand for the other.
A good is a normal good if an increase in income causes an increase in demand. A good is an inferior good if an increase in income causes a decrease in deman
The quantity supplied of a good or service is the quantity sellers are willing to sell at a particular price during a particular period, all other things unchanged.
A supply schedule shows the quantities supplied at different prices during a particular period, all other things unchanged. A supply curve shows this same information graphically.
A demand curve shows graphically the quantities of a good or service demanded at different prices during a particular period, all other things unchanged.
All other things unchanged, the law of demand holds that, for virtually all goods and services, a higher price induces a reduction in quantity demanded and a lower price induces an increase in quantity demanded.
A variable that can change the quantity of a good or service demanded at each price is called a demand shifter. When these other variables change, the all-other-things-unchanged conditions behind the original demand curve no longer hold.
Although different goods and services will have different demand shifters, the demand shifters are likely to include (1) consumer preferences, (2) the prices of related goods and services, (3) income, (4) demographic characteristics, and (5) buyer expectations. Next look at each of these.
A surplus exists if the quantity of a good or service supplied exceeds the quantity demanded at the current price; it causes downward pressure on price. A shortage exists if the quantity of a good or service demanded exceeds the quantity supplied at the current price; it causes upward pressure on price.
An increase in demand, all other things unchanged, will cause the equilibrium price to rise; quantity supplied will increase. A decrease in demand will cause the equilibrium price to fall; quantity supplied will decrease.
Quantity demand increase/decrease (movement along the curve up/down
Demand increase/decrease (shift to the curve right/left
An increase in supply is shown as a shift to the right of a supply curve; a decrease in supply is shown as a shift to the left.
The equilibrium price is the price at which the quantity demanded equals the quantity supplied. It is determined by the intersection of the demand and supply curves.
A demand schedule is a table that shows the quantities of a good or service demanded at different prices during a particular period, all other things unchanged.
The information given in a demand schedule can be presented with a demand curve, which is a graphical representation of a demand schedule. A demand curve thus shows the relationship between the price and quantity demanded of a good or service during a particular period, all other things unchanged.
A movement along a demand curve that results from a change in price is called change in quantity demanded . Note that a change in quantity demanded is not a change or shift in the demand curve; it is a movement along the demand curve.
The negative slope of the demand curve in Figure 3.1 suggests a key behavioral relationship of economics. All other things unchanged, the law of demand holds that, for virtually all goods and services, a higher price leads to a reduction in quantity demanded and a lower price leads to an increase in quantity demanded.
An increase in supply, all other things unchanged, will cause the equilibrium price to fall; quantity demanded will increase. A decrease in supply will cause the equilibrium price to rise; quantity demanded will decrease.
To determine what happens to equilibrium price and equilibrium quantity when both the supply and demand curves shift, you must know in which direction each of the curves shifts and the extent to which each curve shifts.
